Deja Vu All Over Again?

"We are spending more money than we have ever spent before, and it does not work... After eight years of this administration, we have just as much unemployment as when we started...and an enormous debt, to boot." Treasury Secretary Henry Morgenthau conceded to Congress in 1939

Some Facts For Election Day

With the election upon us and politics really heating up, it might be a good time to present some more facts.  Both teams keep fighting and pointing fingers, but the graph below shows participation from both sides.  It also took some indulgent consumers to make it happen.  We were "all in".  We're still "all in". Reagan kicked it off in 1982 and the party continues today.  Note the difference between now and the Roaring 20's.  We have them beat by a mile.  Does the "down" relate in magnitude to the "up".  We hope not.  But, note that the down in the 30's was below the level where the Roaring 20's began.

Boobus Americanus

James Quinn may have come up with one better than "sheeple".  Boobus Americanus...why didn't I think of that one?
"Today’s Keynesian economists have convinced boobus Americanus that the Great Depression was caused by the Federal Reserve being too tight with monetary policy and the Hoover administration not providing enough fiscal stimulus. Ben Bernanke and Barack Obama used this line of reasoning to ram through an $850 billion pork-laden stimulus package, as well as the purchase of $1.2 trillion of toxic mortgages by the Federal Reserve.  The only trouble is that this storyline is a complete sham.  The fact that colossal stimulus spending, zero interest rates, the purchase of over a trillion in toxic assets by the Fed, and the loosest monetary policy in history have done absolutely nothing to revitalize the economy, has proven that Keynesian policies have been a wretched failure. This is not a surprise to Austrian school economists.  Keynesian policies failed during the Great Depression, and they are failing today. An economic catastrophe caused by loose monetary policies, crushing levels of debt, and appalling lending practices cannot be solved by looser monetary policies, issuance of twice as much debt, and government commanding banks (or, in the case of Fannie and Freddie, “commandeering”) to make more bad loans.  The Great Depression was caused by Federal Reserve expansion of the money supply in the 1920s that led to an unsustainable credit-driven boom. When the Federal Reserve belatedly tightened in 1928, it was too late to avoid financial collapse. According to Murray Rothbard, in his book America’s Great Depression, the artificial interference in the economy was a disaster prior to the depression, and government efforts to prop up the economy after the crash of 1929 only made things worse. Government intervention delayed the market’s adjustment and made the road to complete recovery more difficult."
James Quinn, The Burning Platform

the entire article:
http://www.theburningplatform.com/

Sooner Or Later

"There is no means of avoiding the final collapse of a boom brought on by credit and fiat monetary expansion. The only question is whether the crisis should come sooner in the form of a recession or later as a final and total catastrophe of depression as the currency systems crumble.”
Ludwig von Mises

Bear Market Rally Comparison

A nice historical comparison from ChartoftheDay.com

You Are Here

Maybe it's the "geologist in me", but when I'm touring somewhere I always love the map with the "you are here" arrow. It quickly gives you a reference point and spatial context. Now sometimes on a long hike, I hate those maps because they quickly inform you that your current location is far from your ultimate destination!

I've presented the chart below several times. I was reviewing it again this morning and find the quotes from President Hoover so interesting. Was he in denial, dishonest, or a good leader attempting to keep the sheeple from stampeding. I don't know. I would guess that he was "in the know" and was attempting to stop the stampede. Unfortunately herding mammals move "in mass" and one individual usually can't stop the stampede.

I've annotated the chart with my own "you are here" arrow. I've referred to what I call the "head fake" before. On October 8, 2009 I made a detailed post on the topic and that prediction was dead on. The last market rally was exactly that. It lures us back it. The "Kool-Aid" was poured for one last drink. I believe that the final sprint has occurred.

Unfortunately for our 401-k's, but fortunately for mankind's future, I believe that we are in a downward slide until at least 2012. A likely bottom might even be in 2016. But, at the bottom, we experience our "great awakening". Stayed tuned mon amis.

Bear Market Rally

"This bear market rally was indeed a huge affair. But still not out of the realms of former bear market rallies, which are mostly forgotten today. A prime example is the rally following the 1929 crash.  Stock prices rose more than 50 percent, and contemporary economists declared the crisis over. But the crash was only the prelude to the devastating bear market that got going after the bear market rally of early 1930."

 Claus Vogt, Weiss Research

It Sure Does Rhyme

“History Does Not Repeat Itself, But. It Sure Does Rhyme” Mark Twain

If you believe the correlation above, then October could be the beginning of the "next leg down".

The Bubble Composite

"As Mark Twain said, 'history does not repeat itself, but it does rhyme' There is a certain rhythm to secular bear markets in that they often take a similar shape in magnitude and duration. Secular bear markets can last anywhere from 10-15 years and I have created a bubble composite based on three well known bubbles and secular bull market tops. The bubbles I used were the Dow Jones from the 1929 peak (Great Depression), gold’s 1980 top (beginning of The Great Moderation), and the Nikkei’s 1989 top (Japan’s Lost Decade). Taking the average path of the three bubbles and overlaying the data with the NASDAQ’s 2000 market top showed that there was a likelihood that 2010 would contain the next major market peak and that we would then have a long slide into the next low in 2013. The bubble composite has been uncannily accurate and projected a market peak in the first half of 2010 followed by a short snap back rally before plunging back to the 2009 lows. Given the bubble composite is an average of three paths the day to day noise is a bit filtered out though the declining trend for the next few years is as clear as day and is not the least bit encouraging."
Chris Pupluva

A very intriguing analysis:
http://financialsense.com/contributors/chris-puplava/when-the-market-speaks-listen

My intrigue with fractals is well known.
http://randomroving.blogspot.com/2001/09/chaos-fractals-and-complexity.html

Ian Gordon's DJIA 1000 Prediction

Q&A With IAN GORDON
A Bear's Bear: We're Only At The Beginning of the Collapse
Source: BRIAN MILNER, April 2, 2009

Anyone wondering what a bear's bear sounds like need only spend some time with Ian Gordon, a Vancouver-based investment adviser and market historian whose genial nature seems at odds with his decidedly grim outlook. Basing his views on an interpretation of market cycles going back more than 200 years, the president of Long Wave Analytics has been consistently accurate in his forecasts in recent years. And if he is right now, much worse is yet to come.

Can you explain how your thesis works?
I sort of extended Kondratieff's economic cycle into something far bigger than he had ever intended. [Nikolai Kondratieff was a Soviet economist who concluded in the 1920s that capitalist economies endure recurring booms and busts over long cycles running up to 60 years.] I quickly discovered that it was very easy to recognize exactly where you were in the cycle.

You divide the cycle into the four seasons of the year and say that right now we're at the beginning of a long winter. Why is that?
I consider the seasons to be very appropriate. The present cycle started in '49. The spring started with the bear market ending that year. Spring ended in '66, when that bull market topped in June, with the Dow just under 1,000. ... Spring is the rebirth of the economy, and stocks perform as the economy performs.

And what happens when spring turns to summer?
We have always had an inflation in the summer of the cycle. The reason is that there was always a war. And it was always financed through paper money printing. In the first cycle - and I'm using the U.S. - it was the War of 1812. In the second cycle, it was the U.S. Civil War. In the third, it was the [First] World War and in the fourth cycle, it was the Vietnam War. When I started to write about this in '98, I knew exactly that we were in the autumn bull market [which always follows], and I knew that, given the massive increase in stock prices up to that point in time, we were much closer to the end than the beginning. Which obviously leads us to winter. When the stock market peaks - you can go back to the 1873 stock market peak or 1929 or 2000 - you go into the Kondatriev winter. The winter is really the death of the economy, because debt has to be taken out of the system. And that's what's occurring now. I could anticipate all this simply by looking at all the previous cycles, knowing that the stock market peak would be the indication that we were going into the winter and that the debt bubble would burst.

So why didn't this happen back in 2000 when tech stocks blew up?
Because [then Fed chairman Alan] Greenspan wouldn't let it. He brought interest rates down to 1 per cent [by 2004] and flooded the banking system with money.

Where do we sit now?
We're only really at the beginnings of this massive collapse of the debt structure. Much as the central banks are trying to feed money into the system, the collapse basically takes money out faster than they can put it in.

So all those government efforts to remedy the problems are going to come to naught?
My own feeling is it could be the end of paper money. ... The central banks and the treasuries' response to all this is to just continue to increase the debt. They're trying to get the credit lines open again, but I ask myself: Who's there who can actually take up the loans?

But the markets appear to be rebounding. How do you explain this?
In '29, the [market] peak was on Sept. 3, when the Dow hit 381. The first crash bottomed on Nov. 14, 48 per cent below the point from whence it had begun. Then you got a massive rally [because of government monetary intervention]. Into April, 1930, it recovered [almost] 50 per cent.I think we're very much at that same point again ... where people think that the government is starting to control the problems.

What about the argument that another depression is unlikely, because of all the economic, fiscal and social measures designed to prevent such a nightmare from reoccurring?
I just don't think that those measures are going to work. The U.S. consumer is absolutely tapped out, and that's who you have to depend on for your economy.

So it would be wrong to assume you're advocating a heavy weighting in stocks?
There's a time to be in stocks and there's a time to be in gold. When you're in one, it's because the other doesn't work. In this kind of environment, the only thing that has ever made sense is gold, because people will be so scared of anything else.

Based on your interpretation of Kondratieff theory, when do we see spring again?
The last spring really only started after the [Second World] War, and the war basically stopped the Depression. This time, the United States is in a much more difficult position. Going into the last Depression, it was far and away the world's largest creditor nation. Today, it's the world's largest debtor nation. So its efforts to try to overcome the effects of the Depression are going to be offset somewhat by its ability to borrow.

Getting back to the market, you obviously don't see this as anything more than another bear rally.
Ultimately, the stock market has to reflect the reality of the economy. If we were to emulate 1929-32 in the stock market, that would be an 89-per-cent loss in stock prices. I have a target for the Dow of 1,000 points at the bottom.

Boy, you're going to be a barrel of laughs Tuesday at a Night with the Bears (the Toronto event is sold out).
Having written about this and studied it, I honestly wish it wouldn't happen.

Do you ever depress yourself?
I do. But I hope that I've prepared myself and those that I've advised to basically look after themselves in the best way they can, given what we could see was going to happen.

Source: http://economicedge.blogspot.com/2009/04/q-ian-gordon-bears-bear.html

The Prolonged Bubble Aftermath

BOCA RATON, Fla., Jan 12 (Reuters) - "Renowned Yale University economist Robert Shiller said on Tuesday he sees U.S. housing prices falling further in coming months, fueling more fears about the broader economy. Housing prices have already dropped nearly 30 percent since their peak in early 2006, in a freefall at the center of the global financial crisis. Shiller, pioneer of the benchmark Standard & Poor's Case-Shiller home price index, told Reuters more declines could derail the country's fragile recovery by dragging more financial institutions to the brink of collapse and further discouraging sorely needed lending. Renewed worries about housing are shared by many economists, given the continuing U.S. foreclosure crisis and the number of Americans who now find themselves "under water," with homes that are worth less than their mortgages. The Case-Shiller index, a measure of housing prices in 20 metropolitan areas, showed impressive gains last summer but it rose just 0.4 percent in October from the previous month on a seasonally adjusted basis. "We saw this big upturn but it seems to be flagging," said Shiller.
When November data is published on Jan. 27, he said the index was likely to post its first overall decline since April, snapping five consecutive months of gains. "I think it's more likely to be a decline than a rise in the next few months," Shiller said. Shiller, 63, spoke in an interview in the palm-fringed retirement and resort community of Boca Raton, north of Miami. He declined to predict a renewed recession or "double-dip" in the overall U.S. economy if real estate prices continue eroding but acknowledged his concerns, despite recent gains in consumer confidence and slower declines in the labor market. "I worry about a double dip and worry about further declines in real estate," he said. "I worry that home prices will resume their fall and then the question is how much further down will they go. We're kind of stretched right now," said Shiller. "There are different estimates of what percentage of homes are under water ... Whatever that number is it can go up dramatically if home prices keep going down. And that would create another default crisis," he added. "This is what has bankers worried right now ... They're expecting a possible future crisis," said Shiller. "People forget that the aftermath of bursting bubbles can be very prolonged ... The last time we had such big bubbles was the Great Depression and that lasted a very long time." He noted that housing prices fell for 15 straight years in Japan after its real estate market collapsed in the 1990s. "Unfortunately, I think it's a model for what might happen," said Shiller."
Source: Reuters
http://www.alertnet.org/thenews/newsdesk/N12200896.htm

The Bear Market Rallies Of 1930 and 2009

From Claus Vogt, Weiss Research Inc:
"In 1930, the market rose roughly 50 percent from its 1929 crash low thus recouping half of the preceding losses. This monster rally led many contemporary economists, politicians and financial market experts to reason that the worst was over. But it was not to be ... The Great Depression had barely started, and the stock market suffered losses of another 85 percent measured from this interim high of 1930.
How does the current rally compare to this frightening potential predecessor? There is a scary similarity between the 1930 rally and 2009's. Well, from the March low the S&P 500 has soared 69 percent in nine months. In doing so it recouped a bit more than 50 percent of its former losses. But it's still 27 percent below its all time high of October 2007. Yes, the market rallied strongly in 2009. But it did the same thing in 1930. History then tells us that the current stock market rally is not sufficient enough to reason that the worst is over."

Recession Comparison

Chartoftheday.com presented this interesting chart below comparing prior recessions. Will we be average, Great Depression-like, or a new record? I conclude that the data supports a record setter.
Source: http://www.chartoftheday.com/20090403.htm?T

A Comparative And Quantitative Look At The Great Depression

The media is full of stories about the Great Depression, but rarely does anyone present some quantitative variables for comparison. Here are some to consider:
-Dow Jones Industrial Average (DJIA) Peak - 9/3/1929: 381
-DJIA Bottom - 7/8/1932: 41.2
-Loss: 89%
-Time from Peak to Bottom: 2.85 years

Now lets compare these data to today:
-DJIA Peak - 10/9/2008: 14165
-DJIA after a 89% loss from the peak: 1532
-Bottom Date 2.85 Years From Peak: 8/13/2010